How the Trade War Is Reshaping the U.S. Economy’s Growth Picture

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The ongoing tariff war whipsawed companies again in October, with the U.S. merchandise trade deficit narrowing to the lowest level in more than a year. It was led by a drop in imports — particularly autos and consumer goods.

That brings good news and bad:

The good: The drop in imports is likely temporary because auto intake probably weakened amid the now-over General Motors (NYSE:GM) strike, and consumer goods demand slowed amid a fresh tariff round in September. Both categories are expected to recover in the coming months.

The bad: Cross-border commerce is weakening overall, and the trade war is contributing to the slowdown for companies.

The figures don’t include services and don’t break out country details, though it’s safe to assume trade dynamics with China are reshaping the data set. The ongoing tariff battle has been swinging numbers for the past year, as levies, threats, and turns in negotiations have companies front-loading orders one month and eating into their stockpiles and delaying new orders the next.

The U.S. added 15% tariffs Sept. 1 on $110 billion in Chinese imports, including popular purchases such as the Apple (NASDAQ:AAPL) watch, clothing and shoes. As a result, imports of the items from China dropped in September, and it appears as if that’s continued into October.

At the same time, the boost in inventories and a smaller trade gap should help prop up data on the economy’s health. Barclays (LON:BARC) increased its estimate for fourth-quarter gross domestic product growth to 1.6% and Amherst Pierpont Securities bumped its up to 2.7%. Macroeconomic Advisers increased their GDP tracker to 1.9% for the final three months of the year.

Even though it’s increasing numbers for year-end, the overall trend is still negative, according to Barclays. Total U.S. exports also declined in October, hitting the lowest level since the start of 2018.

“While a narrower trade deficit may mechanically add to GDP growth,” wrote economist Michael Gapen, “underneath that veneer is further evidence of a softening in activity.”

Charting the Trade War

The pressure U.S. Trade Representative Robert Lighthizer and the Trump administration are applying on the World Trade Organization may, in just a few weeks, render the Geneva-based arbiter of trade inoperative.

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